The European downstream oil sector has seen drastic changes over the past years and particularly after 2008 and the outbreak of the financial crisis. The developments which have taken place have put the sector under serious pressure, which was mainly felt by the European refining industry. In a nutshell, the industry has been greatly affected by the declining demand for oil products in Europe, the imbalance between gasoline and diesel supply and demand in the European market, the changing crude oil qualities with which European refineries are being supplied, the refining overcapacity in the region, the thin margins and high energy costs and finally, the stringent environmental legislation of European Union about oil fuels. Additionally, the sector faces increasing competition from its counterparts in the US, Middle East, Russia and other emerging countries in Asia, not only in Europe but also in other global markets.
However, companies involved in European downstream oil sector react differently to these challenges and whereas some are divesting, others are able to see investment opportunities. Moreover, some companies involved in the petroleum refining, oil products storage and trading business, are moving from refining to trading and vice versa, thus switching their business models and responding with different strategies to the dynamics of this sector. The spectrum of drivers behind corporate decisions concerning these strategies is quite wide, and this research has aimed to identify which are the important incentives underlying the decisions of these companies.
The study effort comprises two main phases; in the first, the unique characteristics of the European downstream oil sector are described with the use of theory. Two theoretical frameworks were used: The Transaction Cost Economics (TCE) and Transaction Cost Regulation (TCR). The constructs offered by these theories were critically evaluated for their applicability with respect to the goals of this research, and after considering their limitations and strengths, a new theoretical framework was proposed. This framework combines elements from both TCE and TCR, and it is customized to depict the idiosyncratic nature of this sector. Furthermore, this framework is suitable for describing the nature of industries similar to the European downstream oil one.
For the second phase of the research, the Q methodology technique was employed. At first, the constructs of the theoretical framework helped to identify, from the literature, the important drivers for corporate investments or divestments in the European downstream oil sector. Subsequently, 13 Q methodology interview sessions were conducted with individuals-experts on the topic. Interviewees were related to private and public parties, but also to research organizations. The interviews revealed similarities and differences among the viewpoints of participants, with respect to what is driving corporate investment or divestment decisions in the sector. A comparison and discussion of the different viewpoints helped to identify the most important of these drivers and also revealed the variety in perceptions of stakeholders in the sector. Moreover, the Q methodology research results allowed for testing the premises of the TCE/TCR framework. It was shown that the framework is indeed valid and suitable for the purposes of this research.
The results of this research are important for designing appropriate policies on a European and National Government level, in order to ensure competitiveness of the European downstream oil sector and security of oil products supply in Europe. Furthermore, these results are useful for firms involved in the business, as they offer insights into how other actors in the sector think, and decrease information asymmetries between the industry side and the policy-makers side. Last but not least, this research revealed that the European downstream oil sector is not capable to solve its competitiveness problems on its own, as the Neoclassical Economics predictions about “self-correcting” market forces are not verified. On the contrary, it seems that it will be necessary to see increased activity in the future, from the European Commission or European National Governments, in order to stimulate the industry and restore its competitiveness vis-à-vis other downstream oil industries worldwide.

Due to an asset swap in July 2008, Statkraft became a shareholder of two 20 MW biomass fuelled power plants in Emden (BKE) and Landesbergen (BKL), Germany. Both power plants are able to combust almost every solid biomass, but the main fuel is used-wood. Currently, the procurement of the fuel for both plants is outsourced to E.ON. Statkraft is not able to assess the current procurement activities on effectiveness due to a lack of knowledge of the used-wood market. This is a problem faced by all companies entering a new supply market: lack of knowledge. The research objective is to construct a pilot methodology and test this methodology in the case study of Statkraft. The methodology should generate and gather the required knowledge of a new supply market and procurement policies based on Transaction Cost Economic theory (TCE). From the research objective the following research question is derived:
How can the most appropriate procurement policy be identified for companies that enter a new supply market?
The methodology, which is set up to find an answer for this research question, is based on TCE. This theory addresses the question how to organize transactions, focusing on the internal and external exchange of transactions and transaction costs are recognized. However, this economic theory is not enough to cope with the multi-disciplinary, multi-level and multi-actor characters of a new supply market. Therefore, the methodology is to be augmented with several additional methods.
The methodology is applied in the case study of Statkraft. The governance arrangements spot market, hybrid forms, and vertical integration are assessed by a inductive method based on TCE decision variables and a deductive method based on a Multi Criteria Decision Analysis (MCDA). Regarding the TCE decision variable method, the most appropriate policy is selected based on the decision variables asset specificity, uncertainty, frequency, complexity, and contestability. These variables have been identified in the case and valued based on the additional methods. Regarding the MCDA method, the governance arrangements are ranked based on weighted criteria selected by Statkraft. Both approaches have selected the hybrid form network of firms as the most appropriate policy in this case. In order to implement this option it is recommended to select experienced suppliers with a positive CSR-check and good quality standards. Exchange of knowledge on each others business, working manners, attitudes, interest and wishes is recommended in order to have a fruitful cooperation. In the agreements with the suppliers it is worthwhile to negotiate financial quality incentives, i.e. let the supplier benefit from a higher quality delivery. A direct feedback-loop on the delivered quality can be a tool to achieve a better quality.
The conclusion is that TCE theory accompanied by several other methods form a successful and accurate methodology to identify the most appropriate procurement policy for a company that enters a new supply market. Further application of the methodology is recommended in order to get experience in other cases and test its usefulness.
Regarding the level of generalization of this conclusion, in the TCE decision variable method the decision variables have no weights. If this methodology is used in other cases it might be helpful to add this to the analysis to prevent uncertainty in the results. In the MCDA methods the weighing of the criteria is also crucial. If this methodology is used in other cases it should be done accurate.